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The effects of the European debt crisis on earnings quality

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  • Kousenidis, Dimitrios V.
  • Ladas, Anestis C.
  • Negakis, Christos I.

Abstract

The present study examines whether and to what extent the recent crisis in the European Union (EU) had an impact on the quality of the reported earnings of listed firms in countries with weak fiscal sustainability (Spain, Greece, Ireland, Italy, and Portugal)—countries that have been forced to apply harsh austerity measures and are practically under financial supervision by EU authorities. This study also examines whether incentives for earnings management, probably induced by the crisis, have led to differential effects in earnings quality. The earnings quality attributes examined include value relevance, timeliness, conditional conservatism, smoothing, management, persistence, and predictability. The reported results show that during the crisis, the change in most determinants of earnings quality favors higher earnings quality. However, the results also suggest that in the case of firms that exhibit the biggest discretionary accruals over a single period, most of the earnings quality attributes signal a decrease in earnings quality. These results persist, even when using controls for extremely poor performance. Therefore, the results of this study indicate that, on average, earnings quality has improved in the crisis period; however, in the presence of incentives for earnings management, earnings quality deteriorates.

Suggested Citation

  • Kousenidis, Dimitrios V. & Ladas, Anestis C. & Negakis, Christos I., 2013. "The effects of the European debt crisis on earnings quality," International Review of Financial Analysis, Elsevier, vol. 30(C), pages 351-362.
    • Handle: RePEc:eee:finana:v:30:y:2013:i:c:p:351-362
    DOI: 10.1016/j.irfa.2013.03.004
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    3. Luísa Andreia Serra Costa & António de Melo da Costa Cerqueira & Elísio Fernando Moreira Brandão, 2016. "The impact of financial crisis on earnings management: evidence from EU-25," FEP Working Papers 578, Universidade do Porto, Faculdade de Economia do Porto.
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    6. Yahia M. Al-Mughrabi, 2021. "The Impact of Financial Crisis on Earnings Management in Nonfinancial Listed Firms: Evidence from Jordan," International Journal of Business and Management, Canadian Center of Science and Education, vol. 15(5), pages 168-168, July.
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    8. Joanna Lizińska & Leszek Czapiewski, 2023. "Earnings Management amid the COVID-19 Financial Crisis: The Experience of Poland," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 1, pages 93-112.
    9. G.P. Kourtis & L.P. Κourtis & M.P. Kourtis & P. Curtis, 2017. "Fundamental Analysis, Stock Returns and High B/M Companies," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(4), pages 3-18.
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    20. Maria I. Kyriakou & Konstantina Tsoktouridou, 2021. "Association Between Discretionary Accruals and Audit Fees and the Role of the Size of the Audit Firm: European Evidence," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 27(3), pages 185-196, August.
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    24. Yu, Lean & Zha, Rui & Stafylas, Dimitrios & He, Kaijian & Liu, Jia, 2020. "Dependences and volatility spillovers between the oil and stock markets: New evidence from the copula and VAR-BEKK-GARCH models," International Review of Financial Analysis, Elsevier, vol. 68(C).

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    More about this item

    Keywords

    Earnings quality; European crisis; Incentives for earnings management; IFRS;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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